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Fears of housing bubble spreading from London raised as house prices rise £14k in a year to highest point since April 2008

01-30-2014

Average house price is now £176,491, compared to £162,245 a year ago

Economists expect prices to rise by at least 8% this year

By Matt West

Average house prices have surged by £14,000, or 8.8 per cent in a single year, rising at their fastest pace since 2010 the latest house price index has revealed.

Building society Nationwide’s monthly read of the property market found average property values rose 0.7 per cent month on month to reach £176,491, the highest average price since April 2008.

January also marked the 13th consecutive monthly rise in property values reflecting a rebound in consumer confidence, the building society said. Average property values have also risen by no less than 0.7 per cent each month since last July.

Soaring: House prices have leapt nearly 9 per cent in the last 13 months figures released by Nationwide showed

The 8.8 per cent annual increase is the biggest jump since May 2010 and follows an 8.4 per cent year-on-year uplift in December, although Nationwide said prices are still about 4 per cent below their 2007 peak.

That equates to roughly £10,000 being added to valuations, and with economists predicting house prices will easily grow by a further 8 per cent this year it seems increasingly likely house prices will pass that 2007 milestone by the summer.

It came as the Land Registry reported house prices in England and Wales rose 1.1 per cent in December compared with a month earlier, which pushed the annual increase up to 4.4 per cent from 3.3 per cent in November.

House prices in London spiked up 2.6 per cent in the month and were 11.2 per cent higher than a year earlier in what the Land Registry called and uplift that was 'considerably highers than other regions'. The price of the average property in the capital now stands at around £403,792.

Within London, Hackney, which helped to host the London 2012 Olympics, was the borough with the strongest annual rise in house prices.

Values in Hackney are almost one fifth (17.2 per cent) higher than they were a year ago, now standing at £502,129 on average.

There were also marked month-on-month increases in December in the South East (1.8 per cent), East (1.4per cent), East Midlands (1.4 per cent), North East (1.3 per cent) and South West (1 per cent). Two regions saw a drop in prices in December: the West Midlands (0.6 per cent) and Yorkshire & The Humber (1.2 per cent).

The only region to see house prices fall year-on-year in December was the North East to £97,296 on average, although they were down by a fraction at just 0.1 per cent lower, while there were significant rises in the South East (5.9 per cent) and the East (5.2 per cent).

Robert Gardner, Nationwide's chief economist, said: ‘The housing market is continuing to gather momentum on the back of further solid gains in employment, record low mortgage rates and rising confidence.’

Peak price: While average house prices have not yet reached their pre-recession peak they now lie just 4 per cent below it and will likely pass it by the summer

He said there had been ‘encouraging signs’ that housing market activity is returning towards ‘more normal levels’, with recent HM Revenue and Customs figures showing the number of house sales in December increased to 103,000, up almost a third (30 per cent) on the same month in 2012.

Mr Gardner added: ‘The pick-up in activity appears to be fairly broad-based, and it is encouraging that first-time buyers are a key driving factor behind the upturn.’

But IHS Global chief UK and European economist Howard Archer warned Nationwide’s latest survey only added to fears of a growing house bubble.

‘The strong Nationwide data for January will maintain concern that a new housing bubble could really develop in 2014, especially as the strength in house prices is becoming widespread,’ Mr Archer said.

‘House price rises in London are already of significant concern and this was reinforced by the Nationwide recently reporting that London house prices jumped 4.7 per cent quarter-on-quarter and were up 14.9 per cent year-on-year in the fourth quarter of 2013.

First time high: The number of first time buyers entering the market is the highest for over 10 years

‘Consequently, London house prices are now 14 per cent above their previous peak level in 2007. Significantly though, the Nationwide reported that every region saw house prices rise in the fourth quarter of 2013 both quarter-on-quarter and year-on-year.’

Matthew Pointon, a property economist at Capital Economics, said that in the short-term, further price rises were likely, due to 'a shortage of homes for sale driving up prices'.

He said that looking further ahead, prices should moderate as more people are encouraged by the improving housing market to put their homes up for sale.

Last week, the British Bankers' Association reported that the number of mortgage approvals granted to home buyers rose to a six-year high of 46,521 in December.

The BBA said the rising figures were further evidence of blossoming consumer confidence and the impact of Government support schemes such as Help to Buy.

Figures released yesterday by the Department for Communities and Local Government showed there were 12,875 sales of newly built properties through the Help to Buy equity loan scheme since its launch nine months ago.

A second phase of Help to Buy, which offers state-backed mortgages to people wanting to buy a new-build or an existing property, was launched in October and since then the number of mortgages on the market for people with just a 5 per cent deposit has tripled.

Affordability worries: House prices relative to average earnings are rising to levels not seen since 2008 creating concerns that mortgage borrowers could start to overstretch their finances

Mortgage experts consider first-time buyers the lifeblood of the housing market. At present, the typical first-time buyer home costs 4.6 times average earnings, which is well above the 20-year average of 3.6 times earnings but less than the 5.4 recorded at the top of the market in 2007.

Mr Gardner said more than a million first-time buyers have entered the market since the Bank of England base rate was cut to its historic 0.5 per cent low in 2009.

But he warned: ‘While we do not expect interest rates to rise until mid-2015, borrowers should be prepared for the prospect of interest rates increasing back towards more normal levels.’

The Nationwide house price index comes a day after official figures showed the UK economy expanded by 1.9 per cent in 2013, its fastest rate of expansion since 200. But critics, including Liberal Democrat Business Secretary Vince Cable, have warned Britain's economic recovery is the 'wrong' sort of recovery as it is being built on consumer spending and house prices.

Last week official figures showed unemployment fell at its fastest rate in 17 years piling on pressure on the Bank of England to raise interest rates earlier than the current mid-2015 forecast.

Toughened mortgage rules are due to be introduced in April, which experts have said are likely to keep a lid on lending. The new rules aim to prevent any return to irresponsible lending and mean that lenders will have to consider not only whether someone can afford their mortgage repayments now but also when interest rates eventually start to rise.